National Bank of the Republic of Macedonia (NBRM) has been implementing an exchange rate targeting strategy for a more then a decade and so far it proved to be very successful. The aim of this paper is shortly to explain the advantages of this strategy and moreover to put more focus on the...

Abandoning an objective function with multiple targets and adopting single mandate can be an effective way for a central bank to overcome the classic time-inconsistency problem. We show that the choice of a particular single mandate depends on an economy's level of trade openness and the...

This paper examines the impact of several different factors on the credibility of the Federal Reserve's monetary targets. Two factors appear to explain why the targets became less credible during the 1980s. First, the Fed's shift from M1 to M2 targets reduced credibility because the latter...

We develop an institutional framework for central banks that try to pursue a stability-oriented monetary policy in open-economies by directly targeting the exchange rate. Our main intention is to design a framework which avoids excessive capital inflows that can be regarded as a main cause of...

Although there seems to be a broad consensus among economists that purely floating or completely fixed exchange rates (the so-called corner solutions) are the only viable alternatives of exchange rate management, many countries do not behave according to this paradigm and adopt a strategy within...

Highly volatile exchange rate don't come cheap in economies with large liability dollarization ratios. Therefore, central banks do no follow a unique objective of price stability but its preferences include an implicit exchange rate objective. This gives us reasons to believe that the Peruvian...

Based on a framework originally developed by Morris and Shin (1995), this model shows how a currency crisis may be triggered by a lack of common knowledge regarding government type. Speculators receive noisy differential information concerning the value a government places on maintaining an...

The relative importance of different mechanisms through which devaluations affect output are analyzed using a dynamic stochastic general equilibrium model for a small open economy with imperfect competition and nominal rigidities. Devaluations are defined as an increase in the central bank's...

Distortions introduced by targeting nominal income growth, or an exchange rate peg, in the trade-off between inflation and output in the stabilization of shocks to supply and terms of trade cannot be eliminated simultaneously. If supply shocks are optimally stabilized, targeting an exchange rate...

Based on a framework originally developed by Morris and Shin (1995), this model shows how a currency crisis may be triggered by a lack of common knowledge regarding government type. Speculators receive noisy differential information concerning the value a government places on maintaining an...